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Buying a Trump Property, or So They Thought

A billboard for a failed real estate project in Mexico to which Donald J. Trump licensed his name.Credit
Don Isbell

For many middle-class Americans, it is the most coveted brand in real estate, synonymous with sky-piercing luxury and can’t-miss quality: Donald J. Trump.

Far from the New York City towers that bear his name, in cities like Tampa, Fla., and Philadelphia, house hunters clamor to buy into his developments, sometimes exhausting credit lines and wiping out savings for a chance to own a piece of his gilded empire.

But as Mr. Trump, who is weighing a bid for the White House, has zealously sought to cash in on his name, he has entered into arrangements that home buyers describe as deliberately deceptive — designed, they said, to exploit the very thing that drew them to his buildings: their faith in him.

Over the last few years, according to interviews and hundreds of pages of court documents, the real estate mogul has aggressively marketed several luxury high-rises as “Trump properties” or “signature Trump” buildings, with names like Trump Tower and Trump International — even making appearances at the properties to woo buyers. The strong indication of his involvement as a developer generated waves of media attention and commanded premium prices.

But when three of the planned buildings encountered financial trouble, it became clear that Mr. Trump had essentially rented his name to the developments and had no responsibility for their outcomes, according to buyers. In each case, he yanked his name off the projects, which were never completed. The buyers lost millions of dollars in deposits even as Mr. Trump pocketed hefty license fees.

Those who bought the apartments in part because of the Trump name were livid, saying they felt a profound sense of betrayal, and more than 300 of them are now suing Mr. Trump or his company.

“The last thing you ever expect is that somebody you revere will mislead you,” said Alex Davis, 38, who bought a $500,000 unit in Trump International Hotel and Tower Fort Lauderdale, a waterfront property that Mr. Trump described in marketing materials as “my latest development” and compared to the Trump tower on Central Park in Manhattan.

“There was no disclaimer that he was not the developer,” Mr. Davis said. The building, where construction was halted when a major lender ran out of money in 2009, sits empty and unfinished, the outlines of a giant Trump sign, removed long ago, still faintly visible.

Mr. Davis is unable to recover any of his $100,000 deposit — half of which the developer used for construction costs.

Another casualty: his admiration for Mr. Trump, whose books and television show Mr. Davis had devoured. “I bought into an idea of him,” he said, “and it wasn’t what I thought it was.”

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Part of the property in Baja California, Mexico, where a building was planned that would carry Mr. Trump's name; financing was frozen in 2008 and little construction was done.

Alan Garten, a lawyer for Mr. Trump’s company, said that, regardless of what Mr. Trump himself or any marketing materials had suggested, his role was disclosed in lengthy purchasing documents that buyers should have carefully scrutinized. But in an interview, Mr. Garten acknowledged that, “without a lawyer, it can be difficult” to understand such documents. He suggested that the housing market collapse, not Mr. Trump, was the cause of their troubles.

“They are people who lost money and are looking for somebody to blame,” Mr. Garten said.

Mr. Trump’s Midas touch as a businessman, sometimes real, other times perceived, is central to his presidential aspirations, which have become increasingly hard for Republicans to ignore, even as some of them cringe at his blunt remarks and boastfulness. In the next month, he is scheduled to visit two key primary-season states, South Carolina and Iowa, as he further tests the waters. “I have made myself very rich,” he said recently, sitting in his palatial suite at the Trump International Hotel in Las Vegas. “And I would make this country very rich.”

But regardless of whether Mr. Trump ultimately seeks the presidency, his attempt to promote himself as a savvy financial manager who can lead America out of its economic rut is bringing new scrutiny to his own business practices.

Despite high-profile stumbles, like the bankruptcy of Atlantic City casinos bearing his name, Mr. Trump has nurtured plenty of successful projects, in real estate and beyond: memberships to his golf clubs sell briskly, his men’s suits are a hit at Macy’s, and his NBC series, “The Apprentice,” is a ratings smash. Mr. Trump, in an interview, said the show had earned him well over $100 million.

Yet in recent years, as his brand has experienced an “Apprentice”-fueled resurgence, it appears that Mr. Trump, 64, has taken an expansive approach to putting his name on products big and small. There are Trump mattresses, Trump ties, Trump video games, Trump bottled water and Trump chocolates (designed to resemble bars of gold, silver and copper.)

But it is Mr. Trump’s real estate and education products that have enticed many Americans to invest life savings and dreams of quick riches. And it is with these products, according to a string of lawsuits and complaints filed around the country, that Mr. Trump has disappointed his fans most deeply.

Opening a ‘University’

As the American housing market climbed toward its peak, in 2005, Mr. Trump opened a for-profit school, called Trump University, to impart his wisdom about real estate and moneymaking to the general public.

In marketing materials, he promised students that his handpicked team of instructors would “teach you better than the best business school,” according to the transcript of a Web video. The same year, Mr. Trump licensed his name to an affiliated program, called the Trump Institute, which offered similar classes.

Dozens of complaints about both schools have rolled into the offices of attorneys general in Florida, Texas, New York and Illinois, officials said. And last year, the Better Business Bureau gave Trump University a D-minus, the second-lowest grade on its scale, after it fielded 23 complaints.

A lawsuit filed in 2010 by four dissatisfied former students, who are seeking class-action status, accuses Trump University of offering classes that amounted to extended “infomercials,” “selling nonaccredited products,” and “taking advantage of these troubled economic times to prey on consumers’ fears.”

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Donald J. Trump spoke to Republican women's groups in Las Vegas in April. He has been exploring a White House run.Credit
David Becker/Getty Images

According to the court papers, the university used high-pressure sales tactics to enroll students in classes that cost up to $35,000, at times encouraging them to raise their credit card limits to pay for them. It promised intensive one-on-one instruction that often failed to materialize. And its mentors recommended investments from which they stood to profit.

“It was almost completely worthless,” said Jeffrey Tufenkian, 49, who along with his wife, Sona, enrolled in a $35,000 “Gold Elite” class at Trump University to jump-start a career in real estate.

Mr. Tufenkian, who lives in Portland, Ore., was especially drawn to what Trump University described as a year-long mentorship. But he said that it amounted to a real estate expert from California taking him on a tour of homes in Portland that he could have seen on his own, for free.

At one point, he said, the mentor suggested an educational trip to Home Depot, an idea he found comical; at another, he said, the mentor recommended a sales technique (selling the option to buy a house), that several lawyers later told Mr. Tufenkian he was ineligible to perform because he lacked a real estate license. He recalled how, during a much cheaper Trump class on foreclosure, he and his wife were encouraged by instructors to raise their credit card limits, ostensibly in anticipation of investing in real estate, only to have the accounts maxed out with the purchase of the next $35,000 class, a charge mirrored in the lawsuit. The fee, and the resulting credit card interest payments, have wiped out much of the couple’s savings. Mr. Tufenkian’s requests for a refund have been rejected.

“You can understand how a business makes mistakes,” he said, “but a proper business will do what it takes to make it right. Trump University has no interest in taking care of its customers.”

George Sorial, a managing director and lawyer at the Trump Organization, the company that oversees Mr. Trump’s various businesses, said that the school had a “very generous” refund policy — and that less than two percent of students ask for their money back.

Mr. Sorial called claims that instructors took students on tours of Home Depot and asked students to raise their credit limits “ridiculous” and “unsubstantiated.” He said mentors were prohibited from profiting from their advice. According to student evaluations, he said, Trump University has a 97 percent customer satisfaction rate with its 11,000 paying students around the country.

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“I guarantee that if you went out and surveyed Harvard grads, you would find some who are not happy. It’s inevitable,” he said. “You cannot look at the exception to the rule.”

Students said the evaluations must be put into context: they were told to fill them out using their names, often in the presence of the instructors they were assessing. Mr. Tufenkian, for example, said he gave high marks to the program after his mentor told him he would not leave until Mr. Tufenkian did so. “I had to fill it out right in front of him,” Mr. Tufenkian said.

The school has repeatedly sought to use such evaluations to raise questions about the credibility of unhappy former students. After Tarla Makaeff, who spent about $37,000 on Trump classes, joined the lawsuit against the school, the company released raw footage of a Trump University videographer approaching her in a hotel conference room, asking her to assess the program and her mentors. On the video, her mentors can be seen standing beside her, clearly within earshot. While warning that “we just got started,” Ms. Makaeff, 37, calls the mentors “great” and “awesome.”

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Donald Isbell is among the Baja buyers suing Mr. Trump. He lost a deposit of $147,000.Credit
Sandy Huffaker for The New York Times

In retrospect, Ms. Makaeff said, university employees “were trying to cover themselves,” by putting her on tape. Trump University is now suing her for defamation, seeking at least $1 million in damages for her public criticism of the school in letters, e-mail and online. “That just shows you how low they will go to silence people,” Ms. Makaeff said.

The school’s troubles are intensifying. Last year, the Texas attorney general, Greg Abbott, opened a civil investigation into Trump University’s practices. Since then, the company has agreed not to operate in Texas indefinitely, said Thomas Kelley, a spokesman for the attorney general. (Mr. Sorial said there was no formal agreement.)

And last March, New York state officials demanded that Trump University change its name, saying its use of the word university “is misleading and violates New York education law,” joining Maryland, which issued a similar warning in 2008.

The school has since changed its name to the Trump Entrepreneur Initiative, but has not held a new class in seven months as it reworks its curriculum. “It’s on hiatus,” Mr. Trump said in an interview.

Even as his empire has expanded into reality television and the clothing aisle, Mr. Trump remains, at least in the public imagination, primarily a real estate developer.

But to a remarkable degree over the last five years, Mr. Trump has retreated from that role, becoming, instead, a highly-paid licensor, who leases his five-letter brand name to other developers in Toronto, Honolulu, Dubai and even his own backyard, New York City.

The arrangements allowed Mr. Trump, who is notoriously competitive, to remain a player in the world of big-city builders without risking his own money — a prospect that seemed especially appealing as the economy began to crater.

“When things got over-inflated in the world,” Mr. Trump’s son Donald Jr., said in an interview, “we removed ourselves from the ground-up development world, where we are risking a lot more.”

“We switched more to a license model,” he said, describing several of the projects, including the Honolulu building, as “big successes.”

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An image from an online seminar with Trump University, a for-profit school the developer opened in 2005.

However it was that kind of license deal — in places like Baja California, Mexico, and in Tampa and Fort Lauderdale, Fla. — that led to disappointment and anger among those seeking to buy a home carrying the Trump name, according to the lawsuits.

John Robbins, 62, a retired lieutenant colonel in the United States Army who is among those suing Mr. Trump, recalled being dazzled by the amenities available in the nearly 2,000-square-foot apartment that he and his wife, Rosanna, bought six years ago at the Trump Tower Tampa: granite countertops, sweeping views of the Tampa Bay, and room service from a high-end ground-floor restaurant.

The most important amenity of all, though, was the name on the side of the building. “With the Trump name,” Mr. Robbins said of his $756,000 unit, “we thought it would be a quality building and address.”

The marketing materials left little doubt that Mr. Trump was a driving force behind the 52-story tower: “We are developing a signature landmark property,” Mr. Trump declared in a news release unveiling it, which described him as a partner. In a marketing video, Mr. Trump called it “my first project on the Gulf of Mexico,” and even showed up to mingle with potential buyers at a lavish, catered event. “I love to build buildings,” Mr. Robbins recalled Mr. Trump telling the audience.

A confidential agreement, later made public in court filings, told a different story: Mr. Trump was not one of the developers or builders. For $4 million, plus a share of any profits, he had licensed his name. As for the mingling with buyers? He was required to do it, up to two times, in the agreement, which spelled out that the appearances last “for no more than six (6) working hours each.”

According to the document, the very existence of the license agreement was to be kept confidential. And it remained that way, buyers said, long after they bought their units. “If at any point I had known this, I would have walked away,” said Mr. Robbins, who put down a deposit of about $150,000 — half of which, under Florida law, the developer could use for construction costs.

A similar situation unfolded in Baja, where Mr. Trump licensed his name to another glamorous-sounding waterfront property: the Trump Ocean Resort Baja.

As financing for the building froze in 2008 and the developer missed key deadlines, Mr. Trump exercised his right to terminate the license agreement and remove his name. According to a lawsuit, the partners behind the deal burned through $32 million worth of buyer deposits, even though little, if any, construction was done.

One of the buyers suing Mr. Trump, Donald Isbell, said he has lain awake countless nights trying to figure out how he erred. He has lost his entire deposit of $147,000. “I have come to the conclusion,” he said, “that what I did wrong was to trust Donald Trump.”

Mr. Trump and his advisers seem unapologetic about how they handled the three deals. Asked, in a deposition with lawyers for the Tampa buyers, if he would be responsible for any shoddy construction, Mr. Trump replied that he had “no liability,” and said that he was unsure whether his licensing arrangements were disclosed to buyers. Pressed during the deposition as to why he did not return his license fee after the development fell apart, Mr. Trump replied: “Well, because I had no obligation to the people that signed me to give it back.”

But what has most galled people like Mr. Robbins, who sank much of their life savings into their dream homes, was Mr. Trump’s suggestion that the collapse of the project was a blessing — because it had allowed buyers to avoid the housing crash and the resulting plunge in home values.

“They were better off losing their deposit,” Mr. Trump said.

“Better off?” asked Mr. Robbins, who lost $75,600, the half of his deposit spent on construction. “No. I would be better off if he had been truthful and honest with us from the beginning. I would be better off if he returned my deposit.

“But he will never do that. He is looking out for Donald Trump and the dollar.”

A version of this article appears in print on May 13, 2011, on Page A1 of the New York edition with the headline: Buying a Trump Property, or So They Thought. Order Reprints|Today's Paper|Subscribe